No Runny Eggs

The repository of one hard-boiled egg from the south suburbs of Milwaukee, Wisconsin (and the occassional guest-blogger). The ramblings within may or may not offend, shock and awe you, but they are what I (or my guest-bloggers) think.

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Archive for March 12th, 2009

Any “headlines” section will be a while in coming

by @ 19:20. Filed under The Blog.

Some of the blogs I read, like Hot Air, Sister Toldjah, Melissa Clouthier and The World According to Nick, have set up a “headlines” section, where they post headline links to news stories and articles they find interesting, but don’t necessarily have the time to do a full-blown post. Since the lengthy Scrambles are just too much work, I have been mulling using a “headlines” section as a replacement.

I want to be able to have comments on those headlines, so using a third-party service like Nick does is pretty much out. For a couple of technical reasons, I don’t really want to put the headlines into the same database as the rest of the blog content, so I wanted to have it as its own blog like Hot Air. One of the neat tricks that Hot Air does is allow a single login for both the main blog and the headlines, and that’s where I started running into problems.

I attempted to tie the user tables of the nascient “headlines” blog to those of my test blog (which, while being on a subdirectory of this place, is on a different database), and I just couldn’t get that to work properly. I ended wiping out that blog and the tables it created in the test blog database. At the same time, I was trying out a different mobile theme plugin on the test blog. Between the two things I was trying to do, I somehow hosed that blog, with that mobile theme being forced in IE even after the “force theme” checkmark was unchecked (necessating a cookie/cache clearing), and then all the page/post links attempting to find its equivalent here. That got fixed through brute force (i.e. an elimination of that plugin and then a reinstall of the WP files).

However, as that got fixed, Shoebox and I both lost access to the admin pages here. There was nothing that should’ve been affected on this blog, as the test blog is in its own directory and its own database. After failing to find a more-elegant fix, I had to reinstall the WP files here as well.

Oh well; life goes on.

Open Thread Thursday – 3/12/2009

by @ 7:09. Filed under Open Thread Thursday.

I’m still well under the weather, so all I’ve got is some rare acoustic Jimi Hendrix…

YouTube Preview Image

There’s enough out there, so please share with the class.

Just Because You Don’t Believe It, Doesn’t Make It Untrue.

by @ 5:02. Filed under Economy.

Former Fed Chairman, Alan Greenspan has been getting more and more vociferous in his defense that his easy interest policies, post tech wreck were not responsible for the housing bubble that led to our current wreck. In an article by Reuters, Greenspan said:

“Between 2002 and 2005, home mortgage rates led U.S. home price change by 11 months. This correlation between home prices and mortgage rates was highly significant, and a far better indicator of rising home prices than the fed-funds rate.”

and

Greenspan wrote that “it was indeed lower interest rates that spawned the speculative euphoria. However, the interest rate that mattered was not the federal-funds rate,” adding that U.S. mortgage rates’ linkage to short-term rates had been close for decades.

However, the article goes on to say that the Fed should have had some inkling that there was an issue as early as 2004:

The Federal Reserve became aware of the disconnect between monetary policy and mortgage rates when the latter failed to respond as expected to the Fed tightening in mid-2004, said Greenspan, who was the Federal Reserve Chairman from 1987 to 2006.

Wow, oh Al is certainly using some challenging language there.  Let me see if I can decipher it.

If I put Al’s defense into straight English it would looks something like this:

Between 2002 and 2005 home price increases were driven by low mortgage interest rates.  However, the low mortgage interest rates were not caused by the low fed-funds rate.  Rather, mortgage rates had always been driven by short term interest rates.

My first response is Huh?  Has Al finally crossed into the final mental frontier?  What does Al believe drives short term rates?  You guessed it, Fed-fund rates or a proxy for them, the prime rate.

Look at the attach graph.  It’s rough but you’ll get the idea.  I’ve plotted the average mortgage rate, the fed-funds rate and Treasury rates at three different maturities.  The graph starts in January, 1998 and goes through February of 2009.

rate-new

Here’s what you note: 

Going into the tech wreck as interest rates hit their peak (late 2000), all of the Treasury rates had fallen below the Fed Funds rate.  Note that this same phenomena occurs in the January, 2007 time frame also, nothing to see here.  Note also that the mortgage rates were nominally above the fed-funds rate at both of these times.

Now, look at the trough between January, 2002 and late 2004.  While the shorter term Treasuries dipped with the fed-funds rate, the 30 yr and the mortgages dipped far less.  During this time frame there was a significant and unusual spread that lending institutions were making in that while they were borrowing at something close to the fed-funds rate they were lending at the much higher mortgage rate.  This increased spread is what allowed significant money to be made in mortgages during this time.  It was also this spread, additional profit to various institutions, that was used to allow aggressively bought down “teaser rates”, no payments for the first X months and other promotional offers to get people to purchase mortgages.

Another thing that changes during this “trough time” was the dramatic increase in sub-prime or Alt-A mortgages.  These mortgages became a higher and higher percentage of all mortgages during this time peaking at 13.4% of total loans in 2006.  These loans became available because the significant spread that lenders were making on loans allowed them to leverage it by taking on even riskier loans.  The fact was that they were making enough on all the other loans, because the Fed had reduced rates, that it allowed them to take the additional risk.  As you well know, these sub-prime loans are a big portion of the bubble pop that has us where we are at.

Finally, Greenspan’s notion that the housing prices weren’t driven by the fed-funds because mortgage rates follow short term rates and didn’t this time is nonsense.  Think back during this time.  If you wanted a mortgage, you were often waiting weeks if not months to get the mortgage completed.  Why?  Because the rates were low enough, as low as they had been for a generation, to get all the business they needed to keep busy.  The mortgage rates didn’t need to go any lower than they were because they were getting all the business they could handle.  They had found the perfect spot where in economic terms they were receiving the highest marginal value for each additional unit (mortgage) they produced.  One may ask why, in a capitalistic system, there wasn’t competition to drive the rates lower when the margins were so high?  The answer is that with Fannie and Freddie controlling 90% of the secondary mortgage market, there really isn’t true competition in the mortgage market.

Sorry Al.  Just because you didn’t see the same trend as the historical trend doesn’t make it untrue.  While I didn’t always agree with your actions, I do believe you were a public servant in the best sense of that phrase.  Stop with the attempt at revisionism.  You had a number of years of great success but in this case Al, you blew it.

…And a Senate Hearing Broke Out

by @ 5:02. Filed under Politics - National.

Yesterday, the first committee hearing was held in the Senate.   You can watch the video and see how the deck was stacked in favor of FOCA.  

As a bit of an aside, why is it that the left demands choice when it comes to the killing of infants, removing oppressive dictators and spending taxpayer money but not when it comes to the thugery of unions?

I’ve always had an afinity for one of Rodney Dangerfield, maybe because like him, I “get no respect”.   After watching the video, I was reminded of one of Rodney’s most memorable lines:

I went to a  union rally  the other night, and a Senate hearing broke out.

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